Downtown Fort Lauderdale’s uninspiring condo sector

Peter Zalewski tackles reader questions and opinions about the SoFla market

Jun.June 13, 2014 02:15 PM

Peter Zalewski is a real estate market consultant, non-practicing licensed real estate broker and columnist for The Real Deal who now answers reader questions about the South Florida real estate market in a new Friday column. Questions and comments can be sent to [email protected] The TRD editors will choose which submissions will be addressed.

Question: What is it going to take for Fort Lauderdale to have a similar appeal for condo buyers as Miami?

The distance between Downtown Fort Lauderdale and Greater Downtown Miami might be less than 30 miles – about a one-hour commute on I-95 during rush hour – but the difference in the respective condo markets is dramatic.

At a time when new and existing condo units transact at a rapid rate in Greater Downtown Miami, the activity in Downtown Fort Lauderdale by comparison is uninspiring.

Consider that Downtown Fort Lauderdale has less than 255 condos on the resale market at an average asking price of about $330 per square foot, according to data from the Southeast Florida MLXchange. In Greater Downtown Miami, nearly 2,150 condos are on the resale market at an average asking price of $489 per square foot.

Granted, sellers can ask for whatever price they want, but there are no guarantees their condos will ultimately sell at those desired levels. Clearly, it is the completed condo resale transactions that matter most.

In the first five months of this year, Downtown Fort Lauderdale condo resales traded at an average price of less than $285 per square foot. By comparison, condo resales in Greater Downtown Miami transacted at an average price of $400 per square foot.

Surprisingly, Greater Downtown Miami condo resales achieved a 41 percent premium over Downtown Fort Lauderdale despite having much higher levels of inventory.

A healthy condo resale market is said to have about six months of inventory. More months of inventory suggests a buyer’s market and fewer months represents a seller’s market.

Greater Downtown Miami has some 13 months of condo units on the resale market, compared to seven months of product currently being marketed for sale in Downtown Fort Lauderdale.

A key factor contributing to condo resale volume is the rental rates and leasing activity being achieved in each respective downtown market. Many buyers purchase condos with the intent of renting out their units at some time, so strong leasing activity is an advantage.

The average asking rental price in Downtown Fort Lauderdale is about $1.72 per square foot monthly, compared to an average of $2.60 per square foot monthly in Greater Downtown Miami.

Downtown Fort Lauderdale has less than 100 units on the rental market, representing less than two months of inventory. In Greater Downtown Miami, landlords have listed nearly 1,025 condos on the rental market, representing less than three months of inventory.

In the first five months of this year, condo units in Downtown Fort Lauderdale rented at an average price of $1.74 per square foot monthly. The Downtown Fort Lauderdale average rental price is not a typo, even though it is less than the current average asking price in this market.

In Greater Downtown Miami, the average monthly rental price for a condo unit was $2.36 per square foot between January and May.

The pattern continues with newly proposed condo units slated to be developed east of I-95.

Developers are proposing 15 new condo towers with less than 800 units in the Downtown Fort Lauderdale, compared to 59 towers with nearly 17,400 units in Greater Downtown Miami, according to the preconstruction website (For disclosure purposes, my firm operates this database.)

Developers in today’s preconstruction condo market are focused on collecting 50 percent deposits and then using a majority of the cash for construction of the towers.

The half-down deposit structure is common in Latin America but not well known in the United States, where buyers put down 20 percent deposits during the last South Florida boom and bust cycle.

Last time, the lower deposit requirements led developers to create 75 new condo buildings with less than 4,200 units in Downtown Fort Lauderdale, while establishing 84 towers with more than 22,200 units in Greater Downtown Miami.

Both markets have less than one percent of the original developer condo inventory left unsold.

Overall, the data shows a clear advantage to Greater Downtown Miami over Downtown Fort Lauderdale based on transactions and pricing for condos.

The obvious explanation for this market disparity has to do with the size of the cities and the number of employers that are based in each community.

Miami has nearly 418,000 residents, with nearly 85,200 firms operating within the city, compared to Fort Lauderdale’s population of less than 173,000 residents and nearly 30,200 firms, according to the U.S. Census Bureau. (It is unclear what the population total is in both of the downtowns.)

With the easy answer out of the way, the time for pontificating about the differences in both downtowns is now.

Based on years of researching, discussing and writing about South Florida real estate, the single-biggest factor that seems to propel the condo market in Greater Downtown Miami over Downtown Fort Lauderdale is simple: foreign investors, especially those buyers from Latin America.

Investors from Argentina, Brazil, Colombia and Venezuela have been responsible for scooping up a large number of the unsold condo units in South Florida from the last cycle that began in 2003.

Unfortunately for Downtown Fort Lauderdale, not many of the Latin American investors concentrate on the area.
Some contend Greater Downtown Miami has a much stronger cultural affinity with Latin America than Downtown Fort Lauderdale.

It seems all but impossible to accurately measure this point. A better indicator for cultural affinity may be gauging the number of people from abroad living in each city.

The Census Bureau reports that “foreign-born persons” represents nearly 22 percent of the residents of Fort Lauderdale, compared to 58 percent of the residents of Miami.

For investors who come from countries faced with economic or social turmoil, condos in South Florida – and especially Miami – are typically perceived to offer a “safe haven” for foreign investors looking to park their money for the long term despite the region’s history of booms and busts. For investors from countries that are flourishing, South Florida condos offer the ultimate mantle piece to display their wealth.

The encouraging news for the Downtown Fort Lauderdale condo market is that many foreign visitors – some of which ultimately become real estate investors in South Florida – are increasingly being introduced to Fort Lauderdale due to the expanding number of direct flights arriving daily from Latin America.

Additionally, the Fort Lauderdale condo market is positioned to benefit from plans to introduce passenger rail service on tracks east of I-95 that travel through the heart of every downtown from West Palm Beach to Miami.

Under the passenger rail proposal, individuals living in a Fort Lauderdale condo would have the ability to take a train to Downtown Miami and make stops along the way in places such as Hollywood, Aventura, and Miami’s Design District.

This opens up tremendous opportunities to attract foreign investors in Downtown Fort Lauderdale, where the condo prices are cheaper than in Greater Downtown Miami.

The unanswered question going forward is whether restaurants, bars and nightlife venues in Downtown Fort Lauderdale will be able to adjust their hours and product lines to appeal to those individuals looking to relocate out of Greater Downtown Miami.

Thought of the Week:

The South Florida real estate brokerage community may be in the early stages of a wave of Mergers and Acquisitions.

Earlier this week a couple of high-profile Realtors forewent their brokerage firms after years of operations.

First, Jeff Morr’s Majestic Properties was “acquired” by Douglas Elliman Florida on Monday, according to TRD.

A day later, Katrina Campins – a former participant on real estate developer Donald Trump’s “The Apprentice”– announced that she was “winding down” her Campins Company to join Trump International Realty.

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(Illustration by Andrew Colin Beck)

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